Monday, August 2, 2010

Bears in Hibernation

Hey all - after being out of town for a couple of weeks, I am back. Been absolutely crazy with business related dealings where sleep has been something that has been little and far in between. Flew back from Chicago late last night. First time I have ever really been in Chicago. Absolutely lovely city.

So my thoughts on the markets. Well the last couple of weeks has all been part of this correction move from the July lows. Not surprised at all that it has happened but I have continually been surprised at the ferocity of such moves. My investing "history" is the late 90s and the early part of this last decade and things just don't go up like this with as much violence. Stair step up elevator down is the old idiom. Well it has been elevators up and down the last couple of years. Today's rally was a right hook to the jaw for many bears. Looks like a legitimate breakout and wasn't expected by many bears. There is a bearish spin which is discussed below.

Volume today again was non existent. Becoming a theme I know. It was the lightest 2% up day in the markets in years. It was also the beginning of the month which saw new money get put to work. Actually, beginning of the months usually follow the previous month if it was a violent move in one direction. Beginning of July was a very bearish day as June was very bearish. The reverse happened in the beginning of the month here. It was also seemed to be a sell the rumor buy the news type of day regardless if the news was bad. China PMI data came out over the weekend. The official government PMI number came out at 51.2 down from 52.1 The separate HSBC number fell to 49.4 from 50.4. Anything above 50 is growth and below is contraction. It was the weakest number in over a year for China and was not a good number but the spin is that China has now slowed their economy down and will now ease back on the tightening measures. The U.S. ISM number also came out today declining to 55.5 down from 56.2 but above expectations. The third month this number has declined. Once again it was met with a sense of relief even if it wasn't great.

It will be difficult for the markets to turn on a dime and so today was probably not the high. I have postulated for awhile that 1140 to 1150 was very possible. We are getting close. Looking for catalysts of potential highs is the ISM service number on Wednesday with the ADP number, jobs number on Friday, and FOMC meeting on Tuesday. All possible events that could turn around this market.

I still think the Euro's up move is getting close to being done. I was a little early but correct that a rally coming when everyone thought it was going to parity and I may be early in my thinking that it will start to roll over but anywhere between here up to 1.35 (maybe 1.40) seems prime territory for a turnaround. Inversely the dollar's sell off may be getting close to being done. One trade sentiment index has the percentage of bulls on the dollar fall from 98% (at the June high) down to 7% now. That can extend for awhile but enough of a move to potentially shake some bulls out getting ready to make another move.

The bigger breakout may be commodities with oil and copper up huge. Remember the economy was in recession for over 7 months before commodities, specifically oil made its high around July of 08. In general, oil going any higher is a net drag on the economy.

Finally, the consumer metrics index (CIM) seems to be falling off a cliff. Other blogs mention this from time to time and something I have followed for about six months. Similar to the ECRI in tracking leading indicators. The ECRI, the CIM, and the 10 year Treasury - all say the same thing. A meaningful slowdown is in process for the U.S. economy. The stock market and commodities are saying something very different. Time will tell which is correct. (it is usually not stocks or commodities - remember I just pointed out commodities peaked in July of 2008 well after the slowdown started)

So to sum up, the bulls really are in charge right now. I doubt today was a high (it could be). It seems to go with the theme of a broken market as there is no conviction in buying, it continues to melt up, and moves up or down make little sense. Just have to take side, take the gains/losses and stick with it.

1 comment:

Virginia said...

What do you think about the Jim Roger commodity comment?